US investors rebel against high executive pay

Support for ‘say on pay’ votes is falling as top managers look set to earn record amounts this year

A record number of S&P 500 companies failed pay votes in 2021

Patrick Temple-West, Financial Times (New York)

A growing number of investors are rebelling against high pay at the top of the biggest US companies and some are starting to target individual board directors to try to force action.

In the year to May 15, only 61 per cent of S&P 500 companies that held annual meetings received more than 90 per cent support for executive pay, down from 71 per cent last year and 76 per cent in 2020, according to pay consultancy Farient Advisors.

At the same time, the number of companies receiving just 50 to 90 per cent shareholder support for pay has risen to 36 per cent from 25 per cent last year.

The figures do not include Amazon, which reported in late May that it won just 56 per cent support for bonuses awarded to executives including chief executive Andy Jassy, down from 81 per cent in 2021 and 97 per cent or higher in previous years. Amazon declined to comment.

With US executive pay on track to hit a record this year, the voting figures indicate growing discontent among shareholders.

In May, the head of Norway’s $1.2tn oil fund, which owns the equivalent of 1.5 per cent of every listed company in the world, told the Financial Times: “We are seeing corporate greed reaching a level that we haven’t seen before.”

A record number of S&P 500 companies failed pay votes in 2021, partly because companies rewrote bonus plans to lower targets for payouts. Now, because such “say-on-pay” votes are non-binding, some shareholders are targeting board members to increase the pressure on companies to rein in pay.

“If we are seeing that there has been low support for say-on-pay over two years and we continue to vote against that plan then we will also vote against the compensation committee chair,” said Ben Colton, global head of asset stewardship at State Street Global Advisors, which manages $4tn.

Asset manager Vanguard this year criticised Discovery for failing to justify a $247mn pay package for chief executive David Zaslav. Vanguard said it did not vote for the company’s compensation committee members.

Some companies have started to postpone their say-on-pay votes until after their annual meeting to try to win support from shareholders.

Last month, Pebblebrook Hotel Trust, a real estate investment trust focused on luxury hotels, moved its pay vote from its AGM date of May 16 to June 21 after it gave one-time equity awards to executives for leadership during the pandemic in 2021.

“We just weren’t able to schedule times to talk with our larger shareholders before the vote,” said Ray Martz, Pebblebrook’s chief financial officer.

Video game maker Activision Blizzard postponed its say-on-pay vote last year in the face of a shareholder rebellion.

It is very unusual for a company to adjourn its pay vote, said David Larcker, a professor at Stanford’s graduate school of business.

“The interpretation [for Pebblebrook] is that they did not have the votes to get over 50 per cent,” Larcker said. “From a governance standpoint it is very odd, and I would say not good.”

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